Blackstone’s flagship $48 billion private credit fund suffered its first monthly loss in more than three years during February, as loan markdowns and broader market declines weighed on returns amid intensifying scrutiny of the $2 trillion private credit industry.
The Blackstone private credit fund, known as Bcred, reported a total return of negative 0.4% in February, its first decline since September 2022, when a broad sell-off rocked global financial markets. The fund, the industry’s largest, wrote down the value of a “select” number of loans during the month, including debt extended to customer service software company Medallia, according to a letter to financial advisers reviewed by the Financial Times.
AI Doubts Drive Software Loan Writedowns
The update also pointed to declines in the broader liquid loan market, which the fund invests in, as weighing on overall performance. Investor scrutiny of the $2 trillion private credit market has intensified over the past year as returns have declined. Advances in artificial intelligence have raised doubts about the long-term viability of enterprise software companies, many of which were acquired by private equity groups and financed through private credit loans.
This has triggered a surge in investor redemption demands from private credit funds marketed to wealthy individuals. Blackstone disclosed earlier this month that Bcred suffered $1.7 billion in net outflows during the first quarter as withdrawal requests jumped to 7.9% of its assets.
Blackstone honoured all redemptions in the period, distinguishing itself from several peers who limited withdrawals as requests surpassed thresholds, allowing managers to cap outflows. Funds managed by Morgan Stanley, Cliffwater and BlackRock’s HPS Investment Partners unit all restricted redemptions in the quarter.
Industry-Wide Redemption Pressure Emerges
“Slowing flows and rising redemption requests have been more of a market phenomenon than a Bcred specific phenomenon,” said JPMorgan Chase analyst Kenneth Worthington. He noted that “leading peers such as BlackRock, Blue Owl and Cliffwater” were “also citing significantly higher than historically typical redemption requests”.
Bcred’s returns have declined since the Federal Reserve began cutting interest rates, with total return falling to 6.4% over the past year. In a statement, Blackstone said the fund continued to “deliver strong performance for its investors, with a 9.5% annualised total return since inception”. The world’s largest private investment group noted the 6.4% annual return represented a 2.5 percentage point premium to leveraged loans, a comparable industry benchmark.
In the note to financial advisers, Blackstone argued its performance “underscores the potential benefits of private credit in volatile markets”. The firm has been marking down the value of its Medallia loan provided in 2022 for more than a year, with the latest update indicating expectations for an increasingly large impairment on the deal. The 2022 buyout by Thoma Bravo has become problematic for numerous private credit groups as Medallia’s business has struggled.
When Illiquid Funds Face Liquid Redemption Demands
The private credit industry’s first significant redemption wave exposes a fundamental mismatch: funds marketed to retail investors as liquid alternatives to bonds are discovering their underlying loans can’t actually be sold quickly without accepting massive discounts. Blackstone honouring all redemptions while competitors gate withdrawals demonstrates the precarious position—either you maintain liquidity by holding cash that drags returns, or you invest fully and risk forced asset sales at terrible prices when redemptions spike.
The AI-driven software loan write-downs are particularly telling because they reveal private credit’s concentration in exactly the leveraged buyout targets now facing existential threats, meaning the diversification benefits pitched to investors were largely illusory since most loans financed similar private equity strategies in overlapping sectors. This dynamic mirrors challenges facing any asset class that promises liquidity for inherently illiquid investments, whether private credit funds, real estate investment trusts, or theoretically even stablecoin reserves if redemption demands ever substantially exceeded immediately liquid collateral during market stress.
